SAA CEO cites lack of support from government as reason for resignation

June 3, 2019

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SAA
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Newly reappointed Public Enterprises Minister Pravin Gordhan received a further blow on Sunday with the shock resignation of South African Airways (SAA) chief executive Vuyani Jarana, who lashed out at the lack of government support in stabilising the entity.

In a scathing letter of resignation, Jarana said the lack of commitment to fund the national carrier was systematically undermining the airline’s turnaround strategy and making it near impossible to break-even by 2021.

“The approved corporate plan provided for a break-even point in 2021, requiring funding of R21.7billion, R9.2bn of which was the old debt and R12.5bn of which was working capital requirements till 2021. The basis of executing the corporate plan was that the shareholder would provide the requisite funding to support the corporate plan,” Jarana wrote to SAA board chairperson Johannes Magwaza.

“From 2018 to date, we have had no less than three incidents in which the company was almost unable to pay salaries due to lack of funding. Uncertainty about funding creates challenges in both operations and market environment in that SAA loses leverage over its suppliers as these suppliers demand aggressive credit payments.”

Sources with knowledge of developments at the airline said erstwhile Mango chief executive Nico Bezuidenhout and former Skywise co-chairperson Javed Malik were in the running to replace Jarana.

Jarana took over the helm of SAA in 2017. After a five-year stint as the chief officer of Vodacom Business, he became the eighth person since 2010 – on either a permanent or an interim basis – tasked with turning around the fortunes of SAA.

He becomes the second head of a second state-owned entity to resign in two weeks after the chief executive of Eskom, Phakamani Hadebe, threw in the towel, blaming the demands of the job for causing his bad health.

The resignations of Jarana and Hadebe come hot on the heels of a warning from Moody’s, which said its baseline scenario estimated that the debt-to-gross domestic product (GDP) ratio would reach 65percent of GDP by 2023. It warned that upside pressures remained from potentially larger state-owned entities support packages than planned, as well as slower growth and higher interest rates. SAA was allocated R5bn in the medium-term budget policy statement in October.

Jarana in his letter of resignation said a big chunk of the R5bn was to pay creditors up to the end of March.

“We have not been able to obtain any further funding commitment from the government, making it very difficult to focus on the execution of the strategy.”

The SAA board has accepted the resignation of Jarana, with board chairman JB Magwaza saying: “On behalf of the board, I would like to thank Mr Jarana for his service and commitment to the airline. He contributed to returning confidence and credibility to the airline. We wish him well in his future endeavours”.

Magwaza further said SAA would continue to implement actions to reduce its cost structure and make the airline more competitive domestically and globally.

“In terms of his contractual obligations, Mr Jarana has committed to remain until the end of August to ensure an orderly transition of his responsibilities, which is a matter that the board will consider. The board of SAA will immediately commence the process of searching for a new Group CEO to take the strategy forward,” Magwaza said.

More details on transitional arrangements would be announced soon, the SAA statement further said.

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